Young Money; Why young people are struggling mightily with credit scores.

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Do you remember when you first went to college or finished high school and entered the working world and got your first credit card? While you may have felt like an empowered, responsible adult and used it to charge some really important purchases, like CDs, new clothes at the mall, and a lot of late night pizza, chances are that you made a few mistakes with that card along the way, dinging your credit substantially.

Some things change, but some things stay the same, and these days, young people are still messing up their credit scores. In fact, 68 percent of Americans make at least one major financial mistake before hitting the age of 30, according to a survey of credit scores by age conducted by Credit Karma.

With the average credit score across the country sitting at 667 (according to Experian and VantageScore 3.0 credit scores, which range from 300 to 850), the 19-34 year old segment (Millenials) keeps an average score of 625, well below average. In fact, that’s the lowest score by age bracket, with 35-49 year-olds (Gen X) keeping a 650 average credit score and those over 50 (Baby Boomers and the Greatest Generation) holding rock-solid 709 average scores.

But Millenials and young people are still the least adept at managing their credit and finances, symptoms of a lack of financial education and limited means. Those negative credit events – or “credit fumbles” as they’re often called – can stick around for many more birthdays, as negatively reported items usually stay on a credit history for seven to ten years, according to the Fair Credit Reporting Act.


 

In a time when Millenials are facing significant challenges paying their mounting student loan debt and finding good paying jobs, often holding them back from amassing savings and homeownership, mishaps with their credit score could further set them back.

Even insurance, apartment or rental leases, and some jobs are dependent on a clean credit history these days. And seven out of ten Millenials reported that the mistakes they’ve made with credit and debt have had a negative impact on their lives.

According to the Credit Karma study, the most common mistakes young people made with credit are:

  1. Overspending on credit cards
  2. Late or missing payments
  3. Defaulting on loans
  4. Having accounts sent to collections

The issue definitely seems to be a lack of education about credit and finances. Fifty percent of Millenials surveyed say they received their first credit card by 21 years old, but an astounding 72 percent report they received no education about credit, debt, and managing their finances before heading off to college.

But to be fair, the problem might have to do with circumstances more than intent. According to the Pew Research Center, the median household debt for Americans under 35 dropped from an average of $29,912 in 2007 to $15,473 in 2011, and has remained steady since – other than the prevalence of student loans.

The website MoneyUnder30.com found the common mistakes young people make with credit, debt, and finances include:

  • Borrowing money for a big wedding
  • Not carrying health insurance
  • Postponing saving for retirement
  • Going to graduate school unnecessarily
  • Not building their credit
  • Giving up on their chosen career
  • Rushing to pay off their student loan debt
  • Relying too much on their parents
  • Failing to plan

So what can young people do to education themselves about credit, debt, and finances – or parents do to teach their children?

Introducing simple concepts about money from a young age gives children and teens a huge head start when it comes to money matters. Once they are in high school and start working, driving, and exercising a little more financial independence, sit down with your children and map out the basic concepts about financial responsibility, including savings, managing debt, taxes, credit score, and budgeting.

Here are three good places to get started with what children, teens, and young adults should understand before they take on too much credit and make mistakes that could haunt them for a long time:

Five things you should teach your children about money. 
The ABC’s of teaching your kids about credit score.  
10 Things they should teach in college.  

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